Rely on the market in a crisis

You can stick a pin in a map almost anywhere in the United States, and within a few miles of that pin personally purchase a variety of products, from pencils and straight pins to a laptop computer.  This amazing power comes from thousands of individuals acting to serve their individual interests in pursuit of profit.  In this delicate dance, what is needed is supplied with minimal waste and minimal shortages.  Individuals communicating through price signals are  acutely sensitive to the needs of others with whom they have no direct contact.

In this time of uncertainty, there will no doubt be those politicians clamoring for more government control of medicine, health care supplies, hospitals, etc.  Reacting to hoarding of toilet paper and hand sanitizers, they will propose stringent controls on both, threatening jail for hoarders and those not observing COVID-19 boundaries, while releasing from jail true criminal offenders.

Politicians habitually seek more power in a crisis on the theory that election to office has somehow endowed them with superior intelligence and the requisite power to employ that intelligence.  Inevitably, because it is imposed from above, the power they use creates a set of unwanted, unintended consequences.  The market is inherently democratic and allows for continuous adjustment of supply and demand.  No matter how clever, a politician, his staff, and the attendant bureaucracy cannot operate as well as the intelligence of many working together to supply pencils, motor oil, and potato chips, and hundreds of other things, to any rural convenience store in America.

Hoarding and price-gouging are a sign of a market failure, politicians will argue.  But they are not.  In the face of peak demand, store owners will raise the prices.  This alone will send a downstream signal to consumers to carefully consider how much of the item is really needed and discourage hoarding.  Upstream signals will tell suppliers to divert resources to producing more of the stored item.  When demand persists, individuals will load trucks from far away to deliver the desired item from where it is in excess to where it is needed at additional expense, which they are entitled to recover.  In doing so, they take a chance and gamble that their plan will work out.  In time, the market will even out.  Will some vendors have a windfall at the expense of consumers?  Undoubtedly, they will.  But only until the market reacts to the change in demand.  So a critical question is, am I better off with no toilet paper at $1.00 for four rolls or with it at $3.00?

Likewise, the consumer has a vote.  He may decide there are alternatives to toilet paper at the higher price (like cutting in half a roll of paper towels or using it more sparingly.)  In time and even in the face of a true shortage, demand, as manifested by increased price, will produce more toilet paper.

Banning price-gouging interferes with the signaling mechanism of price.  Hoarders are not discouraged from hoarding, and producers cannot clearly tell how much product is really in demand.  Government interference with the distribution of masks, gloves, and gowns will inevitably result in shortages where needed, and an abundance where it is not needed.  Inasmuch as the private sector can respond rapidly to this crisis, it is best to keep government interference to a minimum.  Indeed, many entities are reconfiguring their production to address the need for personal protective equipment.  COVID-19 has caused much confusion and consternation.  Let's allow society to rule itself and solve its own problems with the wisdom and participation of thousands.